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EBITDA declines in 4QFY22 on higher expenditure; deleveraging continues

Tata Communications (TCOM)’s consolidated revenue rose marginally by 1.9% QoQ to INR42.6b (in line), aided by a 2.1% QoQ growth in data revenue (the key growth driver) and 6.8% QoQ growth in other revenue, even as the voice segment continued to decline.

EBITDA declined 3.4% QoQ to INR10.5b (8.5% miss) in 4QFY22. Consequently, EBITDA margin contracted 140bp to 24.5%. This decline was primarily due to higher expenses, which were back-ended in nature.

Below EBITDA, TCOM reported exceptional loss of INR208.9m, attributed to the provision for litigation of one of its subsidiaries.

Other income grew ~14x QoQ to INR2.6b (v/s INR300m expected), mainly led by incremental guarantee fee and comfort fee charged to its subsidiaries, while interest cost declined 7.6% QoQ (11% above estimate). Adjusted PAT (for exceptional items) stood flat QoQ at INR3.9b (7% miss).

Capex remained in the similar range at INR4.3b (v/s INR4b/INR3.9b on QoQ/YoY basis). Capex for FY22 stood at INR16.1b (v/s INR14.2b in FY21).

The key point to note was that net debt continued to decline (third quarter in a row) to INR67.4b, a decline of INR4.5b QoQ/INR10.4b YoY backed by strong cash flows and a healthy profitability in FY22.

The company generated FCF of INR6.1b for 4QFY22 and INR26.2b for FY22 (v/s INR28.4b for FY21).

The Board recommended a dividend of INR20.7 per share.

Segmental details

Data revenue grew 2.1% sequentially to INR33b (in line) driven by a recovery across all segments, while EBITDA declined 7.1% QoQ to INR9.7b with margin at 29.3%.

Within Data, core connectivity revenue (contributing 69% of data business) remained flattish QoQ at INR22.9b, while EBITDA declined 3.7% sequentially to INR9.8b with 190bp margin contraction to 42.6%.

Digital Platform & Services (contributing 7% of total EBITDA) saw 3.4% revenue growth to INR9.3b, but EBITDA dipped sharply by 42.6% to INR686m.

Incubation services revenue rose 49.1% QoQ. Its EBITDA loss narrowed 16% QoQ to INR767m.

Both Transformation and Payment Solutions witnessed sequential growth. The Transformation segment saw QoQ revenue growth of 6.7% to INR3.3b; EBITDA turned positive to INR74m (v/s estimated loss of INR210m). The Payment Solutions segment witnessed a QoQ revenue growth of 9.7% to INR477m with EBITDA at INR84m (v/s INR13m expected). This business continued to remain impacted by the third COVID wave. The average daily transactions were 57 in FY22 v/s 68 in FY21.

The Voice segment revenue declined 3.1% QoQ to INR5.4b, while its EBITDA (contributing 2% of total EBITDA) declined 59.6% QoQ to INR174m.

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